India Equity Analytics Today: Book Profit on Shree Cement and Axis Bank Stock

AXIS BANK : "BOOK PART

PROFIT "25th Feb 2014

We advice our investor to book part profit in Axis Bank as bank has achieve our target price level of Rs.1217. We still stick to our valuation on

account of bank’s uncomfortable earnings and asset quality stress. Bank’s profitability was up by 19% YoY on the back of right back of

investment depreciation provisions. Exposure to risky sector remained high which would keep asset quality under stress. These factors compel

us to value bank at 1.5 times of FY14E’s book value......................................................... ( Page : 5-9)

SHREE CEMENT. "BOOK PROFIT " 25th Feb 2014

The stock is trading at 4x in 1 yr forward P/B chart.we believe for the current market scenario the price is fare enough to trade.But looking at

future capex plans and sluggish demand we belive the earnings and profitability of Shree cement may fall for the next two consecutive

quarters.The profitability may fall due to incrising depriciation.Till now the company's depriciation level is stable but it may surprise further.so

we recommend its a better pic to book profit. ................................................................. ( Page : 2-4)

IEA-Equity

Strategy

DENA BANK : "Neutral" 24th Feb 2014

Bank’s performance was lower than our expectation in all fronts and reported very weak set of numbers. Operating as well as financials metrics

were remained muted. Profitability was declined by 67% YoY despite of tax reversal owing to muted growth in NII and higher operating

expenses. We are pessimist about the growth parameters. We have neutral view on the stock. .............................................................. ( Page :

16- 20 )

J&K BANK : "BUY" 20th Feb 2014

J&K Bank’s profitability increased by 11% YoY on account of reversal of provisions against NPA and investments, further on account of lower tax

rate profits inflated. Operating profit was flat at 1.4% YoY led by moderate NII growth which further led to margin compression. We lower our

price target to Rs.1525 from earlier of Rs.1578 which implies 1.3 times of FY14E book and 6 times of price earning.

.................................................................................... ( Page : 26- 30)

Bank of Baroda’s profitability was up by 3.6% YoY due to right back of depreciation provisions. Bank’s operating and financials metrics were

remained muted except healthy loan growth. Margin compressed sequentially but management guided domestic NIM of 3% from present of

2.95% which seems achievable if we look at balance sheet structure. We value bank at Rs.634/share which implies 0.75 times of FY14E’s book

value. ......................................................................... ( Page : 21- 25)

25th Feb, 2014

Edition : 213

BANKBARODA : "BUY" 21th Feb 2014

Vardhman Textiles : "BUY" 24th Feb 2014

Nestle India :"The nest becomes weaker" "Neutral" 24th Feb 2014

For 4QCY13, Nestle Ind reported below numbers than street expectations in all counts, sales grew by 4.7%(YoY) led by 3.7% domestic growth

and 20.9% export growth. Its domestic sales contribute 94% and exports 6% of sales. While, PAT marginally declined by 0.7% on YoY basis. At a

CMP of Rs 5043, stock trades at 15.9x P/BV of CY14E. We have a “Neutral” view on stock. .................................................................. ( Page : 10-

12)

Considering the favourable export scenario and completion of capacity expansions, we remain positive on FY14. We, hereby, initiate our

coverage with Vardhman Textiles to BUY with a target price of Rs.412 . Currently the stock is trading at 0.8x p/b , we cut our Earning parameter

for FY15 and cut p/b to 0.7x for FY15 . Looking at the current earning growth and environment the stock is looking very good but due to lack of

trigeers in FY15 we are really conservative for FY15 . ................................................. ( Page : 13-15)

Narnolia Securities Ltd,

India Equity AnalyticsDaily Fundamental Report on Indian Equities

SHREE CEMENT.

Profitability and Earning drag may surprise for the next cosecutive quarters.4772

4791

4791

0%

NA

500387

16572

4143

6186

1M 1yr YTD

Absolute 8.2 9.5 8.1

Rel. to Nifty 9.5 3.8 4.0

2QFY14 1QFY14 4QFY13

Promoters 64.8 64.8 64.8

FII 8.2 8.2 8.1

DII 5.9 5.7 5.9 MAT Credit support the buttom line :Others 21.2 21.3 21.2

Financials : Q2FY14 Y-o-Y % Q-o-Q % Q2FY13 Q1FY14

Revenue 1318 -7.7 5.6 1428 1248

EBIDTA 271 -24.7 8.8 360 249

Net Profit 115 -46.9 -32.9 217 172

EPS 33 -46.9 -32.9 62 49

EBIDTA% 21 -18.4 3.1 25 20

NPM% 9 -42.5 -36.5 15 14(In Crs)

2

The 2m-ton Line-IX clinker unit at Ras, Rajasthan, was commissioned in Jun’13.Line X of

similar capacity along with 25MW of WHRS (at the same location) is expected by

Jun’14.Two grinding units of 2m tons each, at Ras and in Bihar,are being constructed and

expected by Jun’14.We expect Shree to be a 21.5m-tpa company by Jun’15.It plans to

foray into high demanding eastern.Total capex for these expansion is Rs.3,000 crore

which is spread over next 2 years.

The stock is trading at 4x in 1 yr forward P/B chart.we believe for the current market

scenario the price is fare enough to trade.But looking at future capex plans and sluggish

demand we belive the earnings and profitability of Shree cement may fall for the next

two consecutive quarters.The profitability may fall due to incrising depriciation.Till now

the company's depriciation level is stable but it may surprise further.so we recommend

its a better pic to book profit.

BSE Code

SHREECEMNSE Symbol

52wk Range H/L

Mkt Capital (Rs Crores)

5210/3413

Please refer to the Disclaimers at the end of this Report.

Stock Performance-%

Share Holding Pattern-%

1 yr Forward P/B

Source - Comapany/EastWind Research

On the expansion front :

During the Quarter Company got MAT (minimum alternative tax) credit entitlement of

Rs9.25 crore and deferred tax of Rs1.79 crore. This reduced total tax payable amount to

Rs15.27 crore from Rs26.31 crore.

Previous Target Price

Nifty

Volumes grew by18 % but prices came down by 5%. So the EBITDA margin has hit

badly:Shree Cement Ltd has reported a 47% fall in its December quarter net profit on

lower sales as well as 5% degrowth in realization. PAT impacted due to lower other

income (down by 70% YOY), Depriciation burden on EBIDTA (Depriciation increased 41%

YOY). Volumes grew by18 % to3.8mn ton from 3.3mn ton QOQ. Net profit decreased by

47% yoy from Rs.217.44 crore (Rs.62.42 per share) in 2Q13 to Rs.115.49 crore (Rs.33.15

per share) in 2Q14.Total net income from operations stood at Rs.1318.13 crore in 2Q14,

a 6% fall yoy from Rs.1401.23 crore in 2Q13.Other income decreased from Rs.30.2 crore

in 2Q13 to Rs.9.9 crore in 2Q14.In the mean time company declares a Rs.10 as interim

dividend/share.

Power Segment: Realization Down By 15% : For power generation the net realization has

come down from Rs 383 to Rs 334 compared to last year same quarter and in the first

quarter it was still better at Rs 397.So the power realization is down by 13 percent and

hence sales also have come down by 35 percent to Rs.290 Cr. At the same time 14%

increase in its profitability from power segment to Rs112.56 crore while its cement

segment reported 79% fall in its profitability to Rs37.65 crore.

Update Book Profit

Market Data

Average Daily Volume (Nos.)

Upside

Change from Previous

CMP

Target Price

"Book Profit"25th Feb' 14


0

1000

2000

3000

4000

5000

6000

Ma

r-0

2

Oct-

02

Ma

y-0

3

De

c-0

3

Jul-

04

Fe

b-0

5

Se

p-0

5

Ap

r-0

6

No

v-0

6

Jun

-07

Jan

-08

Au

g-0

8

Ma

r-0

9

Oct-

09

Ma

y-1

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De

c-1

0

Jul-

11

Fe

b-1

2

Se

p-1

2

Ap

r-1

3

No

v-1

3

PRICE 1.5x2x 2.5x3x 3.5x4x 4.5x

Outlook :

FY11 FY12 FY13 FY14E

3454 5898 5590 5409

203 163 188 197

3656 6061 5779 5550

905 1500 1513 1409

602 1006 915 1090

2569 4252 4029 4318

885 1646 1561 1091

676 873 436 562

98 235 193 138

-99 69 115 54

365 619 1004 478

20.8 23.1 26.1 11.0

3

From the view company Operations in the high utilisation North and Central markets,

capacity expansions underway, low gearing and strong RoE are fundamental positives.

We believe although, near term challenges in terms of a slowdown in demand for

cement would remain, strong balance sheet and better efficiency in terms of cost

remains a key positive for this company to overcome challenges.Company Management

is bull for the rest two quarters of FY2014 as according to them demand has already

buttom out.We are positive on the stock as it always beats its peers group with lower

operational cost.

The stock is trading at 4x in 1 yr forward P/B chart.we believe for the current market

scenario the price is fare enough to trade.But looking at future capex plans and

sluggish demand we belive the earnings and profitability of Shree cement may fall for

the next two consecutive quarters.The profitability may fall due to incrising

depriciation.Till now the company's depriciation level is stable but it may surprise

further.so we recommend its a better pic to book profit.

we recommend book profit at a 11% high,and stay out from the stock for medium

term,till the triggers hit.

Company Description : Shree Cement (SCL) is a cement producer operating in the two

segments cement and power. As of June 30, 2012, the company had a cement capacity

of 13.5 million tonnes per annum (MTPA) and power capacity of 560 MW. The

company’s brands include Shree Ultra,Bangur Cement and Rockstrong Cement. It has

manufacturing facilities at Beawar and Ras in Ajmer and Pali district and grinding units

at Khushkhera, Suratgarh and Jaipur, respectively, in Rajasthan and Roorkee in

Uttarakhand.


Net tax expense / (benefit)

PAT

ROE%

Power and fuel

Freight and forwarding

Expenditure

EBITDA

Depriciation

Interest Cost


SHREE CEMENT.

P/L PERFORMANCE

Net Revenue from Operation

Other Income

Total Income

Management Corner : From mid-January there is a big change in demand scenario

because of the Indian calendar, the prices have improved, the demand has also

improved and they think that January to June some impact of elections will be there -

pre-election demand and other things. So margins should be better than 21 percent.


-20

-10

0

10

20

30

40

50

60

1100

1150

1200

1250

1300

1350

1400

1450

1500

Revenue

Growth

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0 NPM % OPM % EBITDA %

0

2

4

6

8

10

12

0

50

100

150

200

250

300

350

400

450

EBIDTA

INTEREST SERVICE COVERAGERATIO

FY10 FY11 FY12 FY13

35 35 35 35

1798 1951 2699 3809

1833 1986 2734 3844

1789 1472 818 443

318 217 143 534

28 16 17 18

171 185 584 81

472 267 178 87

4906 4940 5973 6160

0 0 0 0

752 1167 1521 1782

967 729 97 133

299 308 205 378

358 404 503 530

82 108 181 315

416 499 459 369

415 429 363 326

4906 4940 5973 6160

FY10 FY11 FY12 FY13

4.4 3.6 3.8 4.2

212.3 118.6 177.5 288.2

2.3 3.1 3.1 5.6

4.7 5.3 9.9 1.4

1.0 1.2 0.9 0.9

4

Tangible assets

Inventories to Turnover%

Short-term loans and advances

Total Assets

P/B

EPS

Debtor to Turnover%

Short-term borrowings

Long-term provisions

Trade payables

Short-term provisions

Total liabilities

Intangibles

Long-term loans and advances

Inventories

Trade receivables

Cash and bank balances

Creditors to Turnover%

SHREE CEMENT.

Share capital

Reserve & Surplus

Total equity

Long-term borrowings

B/S PERFORMANCE

Trading At :

RATIOS

Capital work-in-progress



AXIS BANK

1237

1217

1147

-2

6

1M 1yr YTD

Absolute -2.2 -17.4 -17.4

Rel.to Nifty 0.8 -21.0 -21.0

Current 4QFY13 3QFY1

3Promoters 33.9 33.9 33.9

FII 43.2 43.4 40.7

DII 9.7 4.9 8.8

Others 13.2 17.8 16.6

Financials Rs, Cr

2011 2012 2013 2014E 2015E

NII 6566 8026 9666 12224 14775

Total Income 11238 13513 16217 19146 21697

PPP 6377 7413 9303 11206 12367

Net Profit 3340 4224 5179 5826 6934

EPS 81.4 102.2 110.7 124.2 148.2

5

(Source: Company/Eastwind)

Stock Performance

Average Daily Volume


Axis Bank Vs Nifty


3.14 lakh

Nifty 6186

Market Data

Upside

1549/764

BSE Code 532215

NSE Symbol

Company Updated BOOK PART

PROFITCMP

Target Price

Axis Bank is now trading at Rs.1237/share which met our target price of

Rs.1217. This price implies P/BV multiple of 1.5 times which is quite

reasonable as per our view. We advice our investor to book part profit from

this stock as we neither see improvement of asset quality nor revival in

economy in near term. In 3QFY14’s result, bank’s profitability was up by 19%

largely due to reversal of investment depreciation otherwise operating profit

was just up by 10.7% YoY. Bank’s exposure to risky sector (Power +

Infrastructure) remained high at 12.87% as against 12.64% in previous quarter.

However, fresh slippage was marginally softened to Rs.589 cr versus Rs.618

on sequential basis. Impairment of assets (GNPA+ Restructure Assets)

remained stable at 3.7% of net advance which was higher among peers.


Asset quality pressure remained persist during the quarter with GNPA and net NPA

increased by 10% and 20% YoY respectively in absolute term. Fresh slippage inch

up improved to Rs.589 cr as against Rs.618 cr in previous quarter. In percentage

term GNPA and net NPA stood at 1.42% and 0.47% as against 1.36% and 0.42%

respectively in previous quarter. Provision coverage ratio without technical write off

declined by 270 bps QoQ led by lower provisions made on sequential basis.

Impairment of assets (GNPA + Restructure Assets) for the quarter remained stable

at 3.7% which was higher among peers. Moreover bank’s exposure to risky sector

(Power + Infrastructure) was remained high at 12.87% of net advance where

slippage risks are relatively high.

55229

AXISBANK

52wk Range H/L

Lower multiple on account of uncomfortable earnings and lower corporate

loan demand

We have lower valuation multiple of bank in compare to its peers on account of

uncomfortable earnings and asset quality stress. Operating performance of bank

was remained under pressure as bank’s core operating revenue (NII + Other

Income) grew by 12.6 YoY owing to lower fee income led by muted corporate and

retail fee income. Corporate loan segment which constituted 46% of total loan grew

by 3% YoY while retail segment loan grew by 44% YoY which constituted 33% of

total loan. Incremental loan growth came from retail segment implying that bank has

to maintain retail growth trajectory for industry average loan growth of 15%. Demand

of corporate loan remained weak due to prevailing economy scenario. So loan

growth for FY14 is likely to be line with system credit growth due to weakness in

corporate loan demand and moderation in retail loan.

Asset quality pressure persist; exposure to risky sector remained high

Mkt Capital (Rs Cr)

"BOOK PART PROFIT "

25th Feb, 2014


6

Valuation Band

1 Yr forward P/E

Moderate growth in profit & loss

AXIS BANK


Bank’s profitability was up by 19% due to reversal of investment depreciation. Overall

provisions and contingencies were lower by 71% QoQ which led PBT growth of 22%

YoY. At operating profit level, bank grew by 10.7% YoY which was lower among peers

(HDFC Bank 29 YoY, ICICI bank 28.6%). Bank’s NII grew by 19.6% YoY largely due to

margin expansion of 14 bps YoY which was supported by low cost deposits franchise.

Core operating revenue (NII+ other income) grew 12.6% owing to muted other income

growth of 1.8% YoY.

Valuation & View

We value bank at Rs.1217/share implying 1.5 times of FY14E’s book value which is quite

reasonable as per our view. We have given this multiple on account of uncomfortable

earning and asset quality stress. Bank’s profitability was up due to reversal of investment

depreciation otherwise growth at operating profit level was remained lower as compare to

its peers. Asset quality increased at moderate pace with high exposure in risky sector

where fresh slippage risks are remaining high.

1 Yr forward P/BV


7

AXIS BANK

Source: Eastwind/Company


Fundamenatl throught graph

NII growth led by healthy CD ratio and

margin expansion on YoY basis

Lower other income and higher CI ratio led

muted PPP growth

Profit growth was higher than expectation on

the back of lower provisions


8

Quarterly Result

AXIS BANK




Quarterly Result 3QFY14 2QFY14 3QFY13 % YoY Gr % QoQ Gr 3QFY14E Variation

Interest/discount on advances / bills 5557 5394 4907 13.3 3.0 5748 3.4

Income on investments 2110 2143 2014 4.8 -1.5 2235 5.9

Interest on balances with Reserve Bank of India 49 35 25 97.7 39.4 35 -29.2

Others 73 37 19 277.1 95.6 38 -47.4

Total Interest Income 7789 7609 6965 11.8 2.4 8056 3.4

Others Income 1644 1766 1615 1.8 -6.9 1774 7.9

Total Income 4628 4703 4110 12.6 -1.6 4780 3.3

Interest Expended 4805 4672 4470 7.5 2.8 5049 5.1

NII 2984 2937 2495 19.6 1.6 3006 0.8

Other Income 1644 1766 1615 1.8 -6.9 1774 7.9

Total Income 4628 4703 4110 12.6 -1.6 4780 3.3

Employee 655 644 615 6.5 1.7 0

Other Expenses 1358 1309 1134 19.8 3.8 0

Operating Expenses 2013 1953 1749 15.1 3.1 2008 -0.3

PPP( Rs Cr) 2615 2750 2362 10.7 -4.9 2772 6.0

Provisions 202 687 387 -47.7 -70.5 752 271.4

PBT 2413 2062 1975 22.2 17.0 2020 -16.3

Tax 808 700 628 28.8 15.5 687 -15.0

Net Profit 1604 1362 1347 19.1 17.7 1333 -16.9

Balance Sheet Date

Net Worth 37649 36224 27027 39.3 3.9 37558 -0.2

Deposits 262398 255365 244501 7.3 2.8 272935 4.0

Loan 211467 201303 179504 17.8 5.0 214892 1.6

Asset qualtiy( Rs Cr)

GNPA 3008 2734 2275 32.2 10.0 -

NPA 1003 838 679 47.8 19.7 -

%GNPA 1.4 1.4 1.3 -

%NPA 0.5 0.4 0.4 -

9

AXIS BANK

FINANCIALS & ASSUPTION




Income Statement 2011 2012 2013 2014E 2015EInterest Income 15155 21995 27183 31198 38490

Interest Expense 8589 13969 17516 18974 23716

NII 6566 8026 9666 12224 14775

Change (%) 31.2 22.2 20.4 26.5 20.9

Non Interest Income 4671 5487 6551 6922 6922

Total Income 11238 13513 16217 19146 21697

Change (%) 25.3 20.2 20.0 18.1 13.3

Operating Expenses 4860 6100 6914 7940 9330

Pre Provision Profits 6377 7413 9303 11206 12367

Change (%) 22.4 16.2 25.5 20.5 10.4

Provisions 3033 3189 4124 2402 2461

PBT 3345 4224 5179 8804 9906

PAT 3340 4224 5179 5826 6934

Change (%) 34.8 26.5 22.6 12.5 19.0

Balance SheetDeposits( Rs Cr) 189166 219988 252614 290506 334081

Change (%) 34 16 15 15 15

of which CASA Dep 77758 91412 112100 124917 143655

Change (%) 18 18 23 11 15

Borrowings( Rs Cr) 26268 34072 43951 51266 58956

Investments( Rs Cr) 71788 92921 113738 129873 149354

Loans( Rs Cr) 142408 169760 196966 228481 265037

Change (%) 36 19 16 16 16

Valuation

Book Value 460 549 708 813 942

CMP 1404 1146 1304 1174 1174

P/BV 3.1 2.1 1.8 1.4 1.2

Nestle India

5043

-

-

-

-

1M 1yr YTD

Absolute -3.7 10.7 3.4

Rel. to Nifty -1.0 7.4 1.8

Current 3QCY13 2QCY13

Promoters 62.8 62.8 62.8

FII 13.1 12.6 12.6

DII 5.9 6.3 6.2

Others 18.2 18.3 18.5

Financials Rs, Cr

4QCY13 3QCY13 (QoQ)-% 4QCY12 (YoY)-%

Revenue 2262.97 2360 -4.1% 2161.1 4.7%

EBITDA 478.3 503.9 -5.1% 504.1 -5.1%

PAT 287.1 289.6 -0.9% 289.2 -0.7%

EBITDA Margin 21.1% 21.4% (30bps) 23.3% (210bps)

PAT Margin 12.7% 12.3% 40bps 13.4% (70bps)

10



Stock Performance

For 4QCY13, Nestle Ind reported below numbers than street expectations in all counts,

sales grew by 4.7%(YoY) led by 3.7% domestic growth and 20.9% export growth. Its

domestic sales contribute 94% and exports 6% of sales. While, PAT marginally declined

by 0.7% on YoY basis. The company does not share volume growth numbers, but its

statement did mention that sales rose mainly because of higher prices and product

mix.


Nestlé’s more focus on margin stability could sacrifice its volume. Company’s cash cow

portfolio baby foods becoming weaker because of low ad spend. Now, Mead Jhonson

and Danone are dominating in same segment.

48593Mkt Capital (Rs Cr)

52wk Range H/L 5865/4410

NSE Symbol


View and Valuation: Company’s less aggression on volume growth and the excessive

focus on Margin expansion make us cautious on the stock. At same time, company

believes on expansion of new plant set up by ignoring the dividend payout to

investors. Consistently, its RoE is on downward direction. At a CMP of Rs 5043, stock

trades at 15.9x P/BV of CY14E. We have a “Neutral” view on stock.

1 yr Forward P/B


21590

Nifty 6091

NESTLEIND Management will continue to focus on reinforcing the fundamentals of growth drivers.

Further, improve operational efficiencies, and keep rationalizing its SKUs. They are

very confident of strategy to deliver long-term sustainable profitable growth, despite

the short-term challenges.

Margin dip: During the quarter, company has been efficient to maintain its mark of

margin above than 20%. However, Margin ramp down by 210bps(YOY) to 21.1% because

of inflationary pressure on raw material. There was improvement in raw material cost by

110 bps to 46.1% of adjusted net sales. PAT margin inched down by 70bps(YOY) to

12.7%. For CY13, EBITDA Margin and PAT margin were flat at 22.2% and 13%.

Mix impact on RM Cost: Its top 3 inputs by value are milk and milk products, flour, and

palm oil, which together account for two-thirds of its material cost. Milk and wheat flour

have both seen prices increase, while a weak rupee has affected palm oil prices.

However, other inputs such as green coffee and sugar have seen softer price trends.

Jerk on Potential Market share: Nestle has been enjoying its leadership position (No.1)

in all categories except soups and its positioning in Chocolates, noodles, Coffee has

dominantly been unchallenged. Despite all facts, company has been facing many

challenges over the past one and half years from Cadbury's and Ferrero Rocher in

Chocolate, from HUL and ITC in noodles and from HUL in Coffee (Bru).

"The nest becomes weaker"

CMP

Market Data

Upside

Weak numbers and showing up margin as well…,

Target Price


For CY13, Company posted 9.2% sales growth, hugely impacted by weak consumer

demand and high competitive intensity environment, PAT up by 6%.

Result update NEUTRAL

BSE Code 500790

"NEUTRAL"24th Feb' 14


11

Concerns: (1)Continued input cost pressure could impacts its margin, (2) Competitive

intensity impacting its market share adversely, (3) Any adverse impact of inflation on

consumer demand would significantly impact sales and earnings growth assumptions.


Sales and Sales Growth(%)




Domestic and Export sales-(% of Sales)

Catalysts and Concerns;

Catalysts: Nestle plays on “Urban consumption theme” and now urban consumption and

demand are stagnant. Thus, we see steady growth in near term, while we maintain that

Nestle is a great long-term story with excellent quality management, strong leadership

across several categories in the food segment and with brand portfolio, there are several

headwinds, which will keep volume growth muted.

Nestle India

RM inflation outlook appears adverse

and that could impact margins to hold

out.

Domestic revenue growth continues to

be very weak

Sales growth led by 4.7% (YoY) India

growth, contributed by net realization

and volume growth in certain product

categories

Margin-%


12



Nestle India

Financials


Rs in Cr, CY10 CY11 CY12 CY13 CY13E CY14E CY15E

Sales 6284.7 7526.6 8334.5 9101.1 9218.0 9904.9 10942.2

RM Cost 2560.1 2933.4 3756.9 3907.0 3871.6 4308.6 4814.6

Purchases of stock-in-trade 578.4 704.2 111.5 110.0 110.62 118.86 142.25

WIP (83) (48) (92) 105 175 99 131

Employee Cost 433.4 546.5 663.4 741.5 760 792.39 875.38

Ad Spend 302.6 327.6 355.9 391.3 488.6 435.8 492.4

Other expenses 1213.0 1474.2 1680.9 1826.3 1797.51 1931.45 2133.73

Total expenses 5004.7 5937.6 6476.5 7081.5 7203.9 7686.19 8589.64

EBITDA 1280.1 1589.0 1858.0 2019.6 2014.1 2218.69 2352.58

Depreciation and Amortisation 127.8 153.3 277.2 330.0 342.9 402.0 474.0

Other Income 12.7 15.1 31.0 83.1 73.7 49.5 87.5

EBIT 1165.0 1450.8 1611.9 1772.7 1744.9 1866.23 1966.08

Interest 1.1 5.1 26.6 36.5 36.0 59.7 83.7

PBT 1163.9 1445.7 1585.3 1736.2 1708.9 1806.5 1882.4

Tax Exp 326.5 426.4 484.7 560.9 564.0 578.1 611.8

PAT 837.5 1019.3 1100.6 1175.3 1145.0 1228.45 1270.62

Growth-% (YoY)

Sales 21.9% 19.8% 10.7% 9.2% 10.6% 8.8% 10.5%

EBITDA 20.5% 24.1% 16.9% 8.7% 8.4% 9.9% 6.0%

PAT 27.9% 21.7% 8.0% 6.8% 4.0% 4.5% 3.4%

Expenses on Sales-%

RM Cost 40.7% 39.0% 45.1% 42.9% 42.0% 43.5% 44.0%

Ad Spend 4.8% 4.4% 4.3% 4.3% 5.3% 4.4% 4.5%

Employee Cost 6.9% 7.3% 8.0% 8.1% 8.3% 8.0% 8.0%

Other expenses 19.3% 19.6% 20.2% 24.4% 19.5% 19.5% 19.5%

Tax rate 28.0% 29.5% 30.6% 32.3% 33.0% 32.0% 32.5%

Margin-%

EBITDA 20.4% 21.1% 22.3% 22.2% 21.9% 22.4% 21.5%

EBIT 18.5% 19.3% 19.3% 19.5% 18.9% 18.8% 18.0%

PAT 13.3% 13.5% 13.2% 12.9% 12.4% 12.4% 11.6%

Valuation:

CMP 3795.2 4569.3 4592.0 5189.0 5189.0 5043.0 5043.0

No of Share 9.6 9.6 9.6 9.6 9.6 9.64 9.64

NW 855.4 1274.0 1798.4 2368.8 2369.6 3050.2 3773.9

EPS 86.9 105.7 114.2 121.9 119.3 127.43 131.81

BVPS 88.7 132.2 186.6 245.7 246.8 316.4 391.5

RoE-% 97.9% 80.0% 61.2% 49.6% 48.3% 40.3% 33.7%

P/BV 42.8 34.6 24.6 21.1 21.0 15.9 12.9

P/E 43.7 43.2 40.2 42.6 43.5 39.57 38.26

Vardhman Textiles

341

412

NA

21%

NA

502986

Profitability at the pick to serve

2170

868

6155

1M 1yr YTD

Absolute -3.8 22.6 29.5

Rel. to Nifty -0.5 20.1 26.2

3QFY14 2QFY14 1QFY14

Promoters 61.9 61.7 61.6

FII 6.6 5.7 5.3

DII 17.2 18.2 18.9

Others 14.4 14.4 14.2

Financials : Q3FY14 Y-o-Y % Q-o-Q % Q3FY13 Q2FY14

Net Revenue 1431 30.9 10.9 1093 1290

EBITDA 346 53.1 0.0 226 346

Depriciation 72 10.8 1.4 65 71

Interest Cost 31 -22.5 -11.4 40 35

Tax 68 83.8 9.7 37 62

PAT 175 108.3 -1.7 84 178(In Crs)

13

On a Strong earning foot..

VTL with its largest domestic capacity in terms of spindles, drives a significant por-tion of

its revenue from spinning segment. Company is one of the largest cotton yarn exporters

from India. Significant presence in Indian market and has emerged as a well known

supplier of the global market. Past few quarters were the turnaround for the company .

Company has strategic tie-ups with Japanese and Korean companies. Consistent

expansion and technological up-gradation has given a global status to the company. VTL

is the supplier of fabrics to the world’s leading brands such as Tommy Hil-figer, Esprit,

Gap, Louis Philippe, Arrow, etc

Vardhman Textiles Ltd (VTL), India’s leading textile player, reported a significant revenue

growth of 30.7% to Rs. 1431 Cr during Q3-FY14 over corresponding period previous year

on the back of 45.8% YoY increase in fabric business to Rs.522 Cr, which constitutes 35-

40% of the overall revenue. While yarn segment, which is the highest contributor of the

revenue, reported YoY growth of 30.5% to Rs.1182 Cr.

Nifty

Upside


Initial CoverageCMP

Target Price


Market DataBSE Code

VTL

Average Daily Volume (Nos.)

NSE Symbol

52wk Range H/L

Mkt Capital (Rs Crores)

410/241


Stock Performance-%


1 yr Forward P/B


Operating profit of the company recorded substantial growth of 70.9% to Rs.274 Cr

during Q3FY14 yoy and outpaced the revenue growth due to significant control over

material cost, employee expenses and fuel charges. Material cost, which constitutes 60%

of the total expenses, grew at YoY rate of 22.9% to Rs.660 Cr. As a result, EBITDA and

operating profit margin re-ported a considerable improvement of 358bps and 455bps

during Q3FY14 yoy respectively. PAT reported the YoY growth of 109.6%, while PAT mar-

gin improved by 466bps.

VTL reported consistent and strong YoY growth in past several quarters with the average

growth rate of more than 20%. Company reported compounded quarterly growth of 3.5%

in past 10 quarters

Despite expansion and heavy CAPEX for capacity enhancement, VTL managed to reduce

its debt to equity on the back of significant expansion in reserves & surplus due to

phenomenal improvement in profit-ability in past several quarters.

Company operates at EBITDA and net margin of 24.9% and 12.2% respectively, which

provides sufficient financial cushion against operating cost and financial expenses. With

liquidity being excellent and cash flows positive, current ratio at 2.58 and cash ratio at

0.47 offer no worries.

"Buy"24th Feb' 14


Advantage India remains for most of FY14E

Business and its strategies

Views and Valuation

FY12 FY13 FY14E FY15E

4641 4972 6245 6682

2651 2316 2741 3007

460 559 647 702

386 486 887 1002

292 349 433 520

4025 3997 4709 5231

616 975 1536 1451

274 295 343 397

174 177 160 160

66 168 336 296

141 356 720 628

6 14 23 17

14

Vardhman Textiles

VTL with its largest domestic capacity in terms of spindles drives a significant portion of

its revenue from spinning segment. Company is one of the largest cotton yarn exporters

from India. Significant presence in Indian market and has emerged as a well-known

supplier of the global market. Past few quarters were the turnaround for the company.

Company has strategic tie-ups with Japanese and Korean companies. Consistent

expansion and technological up-gradation has given a global status to the company. VTL

is the supplier of fabrics to the world’s leading brands such as Tommy Hilfiger, Esprit,

Gap, Louis Philippe, Arrow, etc

Chinese players imported yarn from India owing to the high cotton prices. This led to

the strong performance of Vardhman over the last three quarters. There is no clarity yet

on the policy to be followed by China. If the current scenario continues, Indian spinners

will continue to gain. However, if Chinese players are able to procure cotton at lower

prices, it will have a negative impact on the demand for Indian yarn. We, thereby,

remain conservative about our FY15 estimates.

Employee benefit Expence

Expenditure

EBITDA

Vardhman is geared to report a record profit in FY14. Despite weak macro-economic

scenario and recent expansion, VTL managed to report significant improvement in its

key metrics.Considering the favourable export scenario and completion of capacity

expansions, we remain positive on FY14. We, hereby, initiate our coverage with

Vardhman Textiles to BUY with a target price of Rs.412 . Currently the stock is trading at

0.8x p/b , we cut our Earning parameter for FY15 and cut p/b to 0.7x for FY15 . Looking

at the current earning growth and environment the stock is looking very good but due

to lack of trigeers in FY15 we are really conservative for FY15 .

P/L PERFORMANCE

Net Revenue from Operation

Cost Of Projects & Contractual

Power and fuel

Other expences


Depriciation

Interest Cost

Tax

PAT

ROE%


FY10 FY11 FY12 FY13

57 63 63 63

1548 2202 2144 2444

1604 2264 2207 2506

2346 2925 2044 2100

297 20 505 778

3 3 5 6

87 123 116 84

26 30 48 64

5077 6103 5967 6789

0 0 18 22

2553 2534 2557 2679

45 156 185 213

77 111 92 147

1297 1933 1535 1784

476 667 630 746

262 71 84 65

272 395 326 475

5077 6103 5967 6789

FY10 FY11 FY12 FY13

1.0 0.7 0.6 0.7

45.3 82.5 22.2 56.0

14.2 15.1 13.6 15.0

2.6 2.8 2.5 1.7

3.9 4.4 3.3 3.6

FY10 FY11 FY12 FY13

640 933 576 843

-629 -902 444 -510

11 31 1020 333

-132 -456 -647 -517

10 234 -355 165

-111 -192 18 -19

15


Vardhman Textiles

Trade payables

Short-term provisions

Tangible assets

Capital work-in-progress

Long-term loans and advances

Inventories

Total liabilities

Intangibles

Cash and bank balances

Trade receivables

CASH FLOWS

B/S PERFORMANCE

Share capital

Reserve & Surplus

Total equity

Long-term borrowings

Short-term borrowings

Long-term provisions

Cash from Operation

Short-term loans and advances

Total Assets

RATIOS

P/B

EPS

Debtor to Turnover%

Creditors to Turnover%

Inventories to Turnover%


Trading At :

Changes In Working Capital

Net Cash From Operation

Cash From Investment

Cash from Finance

Net Cash Flow during year


51.55

57

55

11

-

1M 1yr YTD

Absolute -13.6 -50.3 -50.3

Rel.to Nifty -10.7 -53.9 -53.9


3Promoters 66.6 55.2 55.2

FII 7.9 8.6 16.5

DII 4.9 7.3 8.1

Others 20.7 28.9 20.2

Financials Rs, Cr

2011 2012 2013 2014E 2015E

NII 1763 2101 2383 2551 3538

Total Income 2297 2683 3039 3410 4397

PPP 1224 1528 1739 1808 1627

Net Profit 612 803 810 445 502

EPS 18.3 22.9 23.2 9.5 10.7

16



Stock Performance

Provisions and contingencies were up by 44% QoQ on the back of deteriorating

asset quality. In absolute term gross NPA and net NPA both increased by 5% YoY

each. In percentage term GNPA and net NPA stood at 2.96% and 1.97 versus

3.04% and 2.02% in previous quarter. Cumulative provision was up by 4.7% which

slightly improved provisions coverage ratio without technical write off to 33.4% from

33.5% in 2QFY14. Dena Bank's Capital Adequacy Ratio as per Basel III norms stood

at 10.61% as against 10.21% in previous quarter.


DENA Bank Vs Nifty


1.16 lakh

Nifty 6155


1809

Market Data

103/42

BSE Code

Mkt Capital (Rs Cr)

Target Price

Bank’s performance was lower than street expectation and disappointed in

most of operating metrics. GNPA remain high at 2.96% while net NPA were

1.97%. Provision coverage ratio (without technical write off) improved slightly

on sequential basis. Valuation wise, stock is trading at 0.4 times of one year

forward book which is quite reasonable. But looking at growth and operating

metrics, we believe bank would be trade in the range of 0.3 to 0.4 times of one

year forward book. We have neutral view on the stock with price target of

Rs.57.


Upside

52wk Range H/L

532121

NSE Symbol DENABANK

DENA BANK

Provision and contingencies were up on the back of deteriorating asset quality

Higher operating expenses led negative growth in PPP

Operating expenses during quarter was higher at 32.5% YoY which escalated cost

income ratio to 63.4% versus 51.4% in last year. Bank’s employee cost and other

operating expenses both surged to 33% and 32% YoY respectively. This had make

down operating profit to Rs.371 cr (down by 16.3% YoY) versus Rs.443 cr in last

quarter and Rs.371 cr in previous quarter.

NII grew at moderate pace owing to margin compression on Y-o-Y

Dena bank reported very weak set of numbers during quarter with NII grew by 7.5%

YoY to Rs.661 cr largely due to margin compression in year on year basis led by

higher cost of fund than fund yield. Higher cost of fund was due to 208 bps declined

in low cost franchise deposits. Other income was lower at 10.7% YoY to Rs.129 cr

versus Rs.144 cr in previous quarter. Total income was moderate at 4% YoY growth.

Result update NEUTRAL

CMP

ANNUAL REPORT UPDATE

"NEUTRAL"24th Feb, 2014


17

Profitability declined despite of tax reversal

Profitability declined by 67% YoY due to reversal of tax to the tune of Rs. 79 cr as against

reversal of Rs.73 cr in previous quarter. At PBT level, bank was negative at Rs.12 cr

which was highly discouraging. This was basically due to moderate NII growth, higher

operating expenses and higher provisions.

Sequentially margin improved on the back of stable loan yield and slightly

increased of cost of deposits

NIM improved by 10 bps sequentially on the back of higher yield on advance than cost of

deposits. During quarter, bank’s yield on advances remained flat at 11.6% while yield on

investment improved by 4 bps QoQ to 7.6%. Cost of deposits increased by 5 bps QoQ to

7.6%. Going forward, management guided NIM at the range of 2.75% to 3%.

Deposits growth faster than loan growth

On balance sheet growth front, bank’s deposits grew by 13.2% YoY led by term deposits

which grew by 17% YoY. Current account deposits de-grew by 5% YoY while saving

account deposits grew by 9% YoY. Overall CASA ratio de-grew by 208 bps to 29%.

Bank’s loan grew by 11% YoY aided by agriculture and MSME segment which was grown

by 30.7% and 25.4% YoY respectively. Retail advance grew by moderate at 14.4% YoY.

Management guided loan growth of 15-17% for FY14. We model 15% loan growth and

6% deposits growth for FY14.

DENA BANK


Valuation & View

Bank’s performance was lower than street expectation and disappointed in most of

operating metrics. GNPA remain high at 2.96% while net NPA were 1.97%. Provision

coverage ratio (without technical write off) improved slightly on sequential basis.

Valuation wise, stock is trading at 0.4 times of one year forward book which is quite

reasonable. But looking at growth and operating metrics, we believe bank would be trade

in the range of 0.3 to 0.4 times of one year forward book. We have neutral view on the

stock with price target of Rs.57.


18

DENA BANK



NII grew by 7.5% YoY to Rs.661 cr largely due

to margin compression in year on year basis

led by higher cost of fund than fund yield.

Higher operating expenses led negative

growth in PPP

Profitability declined by 67% YoY due to

reversal of tax to the tune of Rs. 79 cr as

against reversal of Rs.73 cr in previous

quarter.


19

DENA BANK




Quarterly Result ( Rs Cr) 3QFY14 2QFY14 3QFY13 % YoY Gr % QoQ Gr 3QFY14EVariation(%)

Interest/discount on advances / bills 1848 1790 1742 6.1 3.2 1931 -4.3

Income on investments 654 644 519 26.0 1.4 666 -1.9

Interest on balances with Reserve Bank of India 3 9 3 -1.5 -70.1 9 -72.2

Others 30 7 0 7541.0 303.8 4 707.6

Total Interest Income 2534 2450 2264 11.9 3.4 2610 -2.9

Others Income 129 150 144 -10.7 -13.9 150 -14.0

Total Income 2663 2600 2408 10.6 2.4 2760 -3.5

Interest Expended 1873 1825 1649 13.6 2.6 1926 -2.8

NII 661 625 615 7.5 5.7 684 -3.3

Other Income 129 150 144 -10.7 -13.9 150 -14.0

Total Income 790 775 759 4.0 1.9 834 -5.3

Employee 255 251 192 32.8 1.6 225 13.4

Other Expenses 164 154 124 32.1 6.1 150 9.2

Operating Expenses 419 406 316 32.5 3.3 375 11.7

PPP( Rs Cr) 371 369 443 -16.3 0.4 458 -19.1

Provisions( Incl. tax provision) 382 335 157 144.2 14.1 351 8.9

PBT -12 34 286 -104.1 -134.2 107 -110.9

Tax -79 -73 80 -199.3 8.6 21 -470.0

Net Profit 68 107 206 -67.2 -36.9 86 -21.1

Balance Sheet Data (Rs Cr)

Deposits 96081 93669 84882

Saving Accounts 21983 21476 20216

Current Accounts 5786 5695 6083

Loan 69895 64785 63040

Asset Quality

GNPA (Rs Cr) 2066 1968 1317

NPA (Rs Cr) 1375 1309 817

GNPA(%) 2.96 3.04 2.09

NPA(%) 1.97 2.02 1.30

PCR(%) (Without technical writeoff) 33 34 38

20

DENA BANK




P/L 2011 2012 2013 2014E 2015EInterest/discount on advances / bills 3820 5161 6819 7421 8737

Income on investments 1193 1544 2019 2536 2307

Interest on balances with Reserve Bank of India 16 38 31 28 28

Others 4 51 30 50 50

Total Interest Income 5034 6794 8899 10035 11122

Others Income 534 582 655 859 859

Total Income 5567 7376 9555 10894 11981

Interest on deposits 3117 4528 6234 6583 7242

Interest on RBI/Inter bank borrowings 8 18 59 0 0

Others 145 147 223 228 342

Interest Expended 3270 4693 6516 7484 7583

NII 1763 2101 2383 2551 3538

NII Growth(%) 60.3 19.1 13.4 7.1 38.7

Other Income 534 582 655 859 859

Total Income 2297 2683 3039 3410 4397

Employee 688 715 792 978 1690

Other Expenses 385 440 508 625 1080


PPP( Rs Cr) 1224 1528 1739 1808 1627

Provisions 612 725 706 1308 1000

Net Profit 612 803 810 445 502

Key Balance sheet dataDeposits 64210 77167 97207 102068 112274

Deposits Growth(%) 25.1 20.2 26.0 5.0 10.0

Borrowings 1692 3881 8414 6515 9763

Borrowings Growth(%) 8.3 129.4 116.8 -22.6 49.9

Loan 44828 56693 65781 72359 83213

Loan Growth(%) 26.4 26.5 16.0 10.0 15.0

Investments 18769 23028 34343 34203 38442

Investments Growth(%) 19.6 22.7 49.1 -0.4 12.4

Eastwind CalculationYield on Advances 8.5 9.1 10.4 10.5 10.5

Yield on Investments 6.4 6.7 5.9 7.4 6.0

Yield on Funds 7.4 8.0 8.1 9.4 9.1

Cost of deposits 4.9 5.9 6.4 6.5 6.5

Cost of Borrowings 9.0 4.2 3.4 3.4 3.5

Cost of fund 5.0 5.8 6.2 6.9 6.2

BANKBARODA

513

624

-

22

1M 1yr YTD

Absolute -18.8 -32.4 -32.4

Rel.to Nifty -15.3 -35.7 -35.7


3Promoters 55.4 55.4 55.4

FII 15.5 15.5 15.3

DII 19.6 19.6 19.0

Others 9.5 9.5 10.3

Financials Rs, Cr

2011 2012 2013 2014E 2015E

NII 8802 10317 11315 12218 14122

Total Income 11611 13739 14946 16400 18304

PPP 6982 8581 8999 9206 10067

Net Profit 4242 5007 4481 4444 4819

EPS 108.3 121.8 106.4 105.5 114.4

21

CMP

ANNUAL REPORT UPDATE

Target Price


During quarter bank’s most of operating as well as financials was muted

except loan growth of 18% YoY. Asset quality was better among peers but in

tight liquidity situation it would remain challenging. Margin was compressed

slightly in sequential basis but management continued to guided domestic

NIM at 3% level from present of 2.95%. We value bank at Rs.634/share which is

0.75 times of FY14E’s book value.

Result update BUY

Upside

Moderate NII growth despite of healthy loan growth and stable CD ratio

Bank’s NII growth moderate at 7.8% YoY to Rs. 3057 cr despite of healthy loan

growth and stable CD ratio. This was due to margin compression of 28 bps YoY led

by lower loan yield than cost of fund. However bank has taken several steps to

reduce the cost as share of bulk deposits declined to 73.8% from 79.3% in last year

and liability franchise increased by increased by 556 bps YoY. Other income (11%

YoY) was supportively help to growth revenue by 8.4% YoY to Rs.3989 cr.

52wk Range H/L

Mkt Capital (Rs Cr)

Market Data

773/429

BSE Code 532134


BANKBARODA Vs Nifty


18.25 Cr

Nifty 6091

NSE Symbol BANKBARODA



Stock Performance


21627

Profitability increased by 3.6% YoY to Rs.1048 cr on account of higher tax provision

made by bank led by DTL special reserve as per suggestion by RBI. In 9MFY14,

total effective tax rate altogether came to 17%. Management guided tax rate for full

year would be 20-22%.

Higher operating expenses led de-growth in operating profit

Operating expenses increased by 25.7% in which employee cost increased higher by

32.3% YoY followed by 17.3% other operating expenses. This was result of

escalating cost to income ratio to 45% from 39% in last year. Higher cost income

ratio and moderate income growth led operating profit de-growth by 2.6% YoY to

Rs.2197 cr.

Provisions lower on account of right back of investment depreciation

Provisions and contingencies declined by 12% QoQ largely due to reversal of

provisions against investment depreciation to the tune of Rs.120 cr as against Rs.93

cr in previous quarter. Loan loss provision was by and large same as in previous

quarter and stood at Rs.819 cr versus Rs. 838 cr. With the reversal of provisions,

PBT increased by 17% YoY and 14% QoQ to Rs.1436 cr.

Profitability increased due to lower provisions

"BUY"21h Feb. 2014


22

BANKBARODA


Asset quality by and large stable, PCR increased

On asset quality front, bank’s gross NPA increased by 10% YoY and net NPA

deteriorated by 5% in absolute term led by higher provision in balance sheet. In

percentage term, GNPA and net NPA stood at 3.4% and 1.9% versus 3.2% and 1.9% in

previous quarter. Provisions coverage ratio without technical write off was improved by

246 bps QoQ to 44.5%. Bank’s asset quality was better than among peers under our

coverage universe.

Margin compression on account of higher cost of fund than fund yield

Valuation & View

During quarter bank’s most of operating as well as financials was muted except loan

growth of 18% YoY. Asset quality was better among peers but in tight liquidity situation it

would remain challenging. Margin was compressed slightly in sequential basis but

management continued to guided domestic NIM at 3% level from present of 2.95%. We

value bank at Rs.634/share which is 0.75 times of FY14E’s book value.

NIM compressed by 5 bps QoQ to 2.37% due to stable loan yield while cost of fund

increased marginally by 10 bps to 5.4%. Bank has taken several steps to curtail cost by

reducing share of bulk deposits and increasing CASA ratio. Domestic NIM improved to

2.95% versus 2.85% in previous quarter whereas oversea NIM remained flat at 1.18% as

against 1.19%. Domestic NIM improvement was on account of higher investment yield to

7.98% from 7.9% on sequential basis.

Loan growth healthy led by SME and retail

Overall deposits de-grew by 4% YoY led by 10% declined of term deposits on year on

year basis. Current account and saving account deposits registered growth of 19% and

13% YoY respectively. This was the result of CASA ratio increased by 556 bps YoY to

26.2%. Loan grew by 18% YoY led by SME growth of 39.2% YoY followed by 21% YoY

growth retail. Corporate loan growth remained intact as bank’s has caution outlook

towards corporate exposure in tight economy scenario.

Narnolia Securities Ltd,22

23

BANKBARODA

Source: eastwind/Company


Bank’s NII growth moderate at 7.8% YoY to Rs.

3057 cr despite of healthy loan growth and

stable CD ratio. This was due to margin

compression of 28 bps YoY led by lower loan

yield than cost of fund

Higher operating expenses led de-growth in

operating profit

Profitability increased due to lower provisions


24

BANKBARODA




Quarterly Result (Rs Cr) 3QFY14 2QFY14 3QFY13 % YoY Gr % QoQ Gr 3QFY14E

Interest/discount on advances / bills 7061 6832 6485 8.9 3.3 7173

Income on investments 2175 2220 1898 14.6 -2.0 2350

Interest on balances with Reserve Bank of India 245 281 403 -39.2 -12.8 397

Others 209 140 58 258.2 50.1 173

Total Interest Income 9691 9473 8845 9.6 2.3 10092

Others Income 932 974 841 10.9 -4.3 1102

Total Income 10623 10447 9686 9.7 1.7 11194

Interest Expended 6634 6579 6004 10.5 0.8 6792

NII 3057 2895 2841 7.6 5.6 3300

Other Income 932 974 841 10.9 -4.3 1102

Total Income 3989 3869 3681 8.4 3.1 4402

Employee 1056 1030 798 32.3 2.5 1189

Other Expenses 736 714 627 17.3 3.1 792

Operating Expenses 1792 1744 1426 25.7 2.7 1981

PPP( Rs Cr) 2197 2125 2256 -2.6 3.4 2421

Provisions 762 861 1029 -26.0 -11.5 897

Exceptional Items 16 16 12 25.0 0.0 0

PBT 1436 1264 1227 17.0 13.6 1524

Tax 372 80 203 83.7 364.7 457

Net Profit 1048 1168 1012 3.6 -10.3 1067

Balance Sheet Date( Rs Cr)

Equity Capital 423 423 412 2.5 0.0

Reserve & Surplus 35232 35127 30966 13.8 0.3

Net Worth 35654 35549 31379 13.6 0.3

Total Deposits 503772 484931 414733 21.5 3.9

Borrowings 29304 28558 27899 5.0 2.6

Other liabilities and provisions 18638 13995 14552 28.1 33.2

Total Liability 587368 563033 488563 20.2 4.3

Cash in hand 16742 15681 17147 -2.4 6.8

Cash and balances with RBI 87599 79980 58295 50.3 9.5

Total Investment 115210 111840 101848 13.1 3.0

Advances 352446 339855 299318 17.7 3.7

Fixed Assets 2562 2498 2399 6.8 2.6

Others Assets 12809 13179 9557 34.0 -2.8

Total Assets 587368 563033 488563 20.2 4.3

Asset Quality

GNPA( Rs Cr) 11926 10888 7321

NPA(Rs Cr) 6624 6316 3363

% GNPA 3.4 3.2 2.4

% NPA 1.9 1.9 1.1

% PCR (without technical writeoff) 44.5 42.0 54.1

25

BANKBARODA




Income Statement 2011 2012 2013 2014E 2015EInterest Income 21886 29674 35197 39065 45206

Interest Expense 13084 19357 23881 26847 31084

NII 8802 10317 11315 12218 14122

Change (%) 48.2 17.2 9.7 8.0 15.6

Non Interest Income 2809 3422 3631 4182 4182

Total Income 11611 13739 14946 16400 18304

Change (%) 32.8 18.3 8.8 9.7 11.6


Pre Provision Profits 6982 8581 8999 9206 10067

Change (%) 41.5 22.9 4.9 2.3 9.4

Provisions 1331 2555 4168 3559 4043

PBT 5650 6026 4831 5647 6024

PAT 4242 5007 4481 4444 4819

Change (%) 38.7 18.0 -10.5 -0.8 8.4

Balance SheetDeposits( Rs Cr) 305439 384871 473883 521272 573399

Change (%) 27 26 23 10 10

of which CASA Dep 87589 103524 119981 135531 149084

Change (%) 23 18 16 13 10

Borrowings( Rs Cr) 22308 23573 26579 33273 36600

Investments( Rs Cr) 71261 83209 121394 122000 134200

Loans( Rs Cr) 228676 287377 328186 367568 404325

Change (%) 31 26 14 12 10

RatioAvg. Yield on loans 8.0 8.7 8.4 8.6 9.3

Avg. Yield on Investments 7.0 7.8 6.4 7.3 8

Avg. Cost of Deposit 4.3 5.1 5.2 5.2 5.4

Avg. Cost of Borrowings 5.5 6.7 5.4 5.5 5.5

Valuation

Book Value 536 668 759 846 929

CMP 963 794 652 513 513

P/BV 1.8 1.2 0.9 0.61 0.6

J&K BANK

1329

1525

1578

15

-3

1M 1yr YTD

Absolute -4.6 2.1 2.1

Rel.to Nifty -1.8 -1.8 -1.8


3Promoters 53.2 53.2 53.2

FII 28.2 27.1 24.8

DII 4.5 4.3 5.0

Others 14.1 15.4 17.1

Financials Rs, Cr

2011 2012 2013 2014E 2015E

NII 1544 1838 2316 2724 3356

Total Income 1908 2172 2800 3097 3728

PPP 1149 1370 1811 1952 2349

Net Profit 615 803 1055 1271 1535

EPS 105.7 126.9 165.7 217.6 262.2

26

532209

NSE Symbol J&KBANK

Loan grew by 21.5% YoY led by loan growth in J&K state by 25% YoY and 19% YoY

growth in outside state. Incremental loan came from corporate loan book which grew

by 23.4% YoY followed by agriculture (21.2% YoY) and SME (21% YoY). Corporate

loan constituted 83% in outside J&K sate, mostly infrastructure segment which has

high risk of restructure. Bank’s management guided loan growth of 20% in FY14

which means bank has to achieve 9% QoQ growth in loan as against quarterly run

rate of 5%.We lower our loan growth assumption from 20% to 15% in FY14E. Credit

deposits ratio improved by 611 bps YoY largely due to lower deposits growth as

against loan.

Margin compression on account of higher cost of fund than deposits

BSE Code

Moderate growth in deposits; CASA remained flat

Bank’s deposits grew by 11% YoY in which 12% growth within state of J&K while

deposits grew by 7% YoY in outside of state. CASA in absolute term reported growth

of 9% YoY while share to total deposits declined by 65 bps YoY 38.8%. Saving

deposits and current deposits registered growth of 5% and 10% YoY respectively

whereas term deposits reported growth of 12% YoY. Despite of lower growth in

CASA bank’s cost of deposits remain stable at 6.6% while cost of fund increased by

16 bps YoY.

Loan grew handsomely led by corporate loan growth

1496/995

Mkt Capital (Rs Cr)

CMP

Target Price

We are disappointed with the growth parameters of bank and accordingly

reduce our target price from Rs.1578 to Rs.1525 due to lower growth in

balance sheet especially within state of Jammu & Kashmir. Bank’ profitability

was up by 11% due to reversal of provisions towards NPA and investment

depreciation while tax rate reduce to 28% versus 30% in last year. Bank’s

management continued to guide loan growth of 20% in FY14 but we lower our

loan growth assumption to 15% for FY14. We value bank at Rs.1525/share

which implies that 1.3 times of FY14E book value and 6 times of price

earnings.


Company Update BUY


Market Data

Upside



Stock Performance

52wk Range H/L

J&k Bank Vs Nifty


22.54lakh

Nifty 6153

Bank’s margin compressed by 36 bps QoQ to 3.97% due to 41 bps QoQ declined of

loan yield to 11.7% while deposits cost increased by 47 bps to 6.6%. Investment

yield improved by 55 bps to 7.7%. Overall cost of fund increased to 6.6% from 6.2%

in previous quarter whereas yield on fund improved slightly from 9.8% to 9.9% which

compressed margin by 36 bps sequentially.


6419

"BUY"20th Feb, 2014


27

We are disappointed with the growth parameters of bank and accordingly reduce our

target price from Rs.1578 to Rs.1525 due to lower growth in balance sheet especially

within state of Jammu & Kashmir. Bank’ profitability was up by 11% due to reversal of

provisions towards NPA and investment depreciation while tax rate reduce to 28% versus

30% in last year. Bank’s management continued to guide loan growth of 20% in FY14 but

we lower our loan growth assumption to 15% for FY14. We value bank at Rs.1525/share

which implies that 1.3 times of FY14E book value and 6 times of price earnings.

J&K BANK



Stable asset quality; PCR highest in industry

On asset quality front, bank’s GNPA increased by 2% QoQ in absolute basis while in

percentage to gross advance, it slightly improved from 1.72% to 1.67% sequentially.

During quarter, bank lowered its provisions by 1% which was the result of increased of

net NPA by 25% QoQ in absolute term. However in percentage to net advance, it stood

at 0.22% as against 0.19% in previous quarter. Fresh slippage ratio was at 1.4 %(

annualized) during quarter which was lower from previous quarter of 1.9%. Provisions

coverage ratio remained high at 86.6% (without technical write off) which was best in

industry in our coverage universe.

Moderate growth in NII despite of healthy loan growth

Bank’s NII grew by 8.8% to Rs.647 cr despite of healthy loan growth and improvement in

CD ratio led by margin compression. Other income was also lower to Rs.87 cr versus

Rs.91 cr in last quarter and Rs.99 cr in previous quarter. With the lower support from

other income, total revenue grew by 7.2% YoY to Rs.734 cr.

Higher operating expenses led flat growth in operating profit

Operating expenses increased by 17% YoY in which employee cost and other operating

cost increased by 15% and 22% YoY respectively. Consequently CI ratio increased by

340 bps to 40%. Moderate loan growth, lower other income and higher operating cost led

pre provisioning growth of 1.4% YoY.

Profitability increased on account of reversal of provisions and lower tax rate

Profitability increased by 11% YoY to Rs.321 cr despite of flat operating profit growth was

due to reversal of provisions towards NPA and depreciation. Bank’s provisions and

contingencies declined by 121% YoY due to Rs. 13 cr reverse from NPA provision and

Rs.5 cr reverse from investment depreciation provision. Tax rate was also lower to 28%

versus 31% in previous quarter and 30% in last quarter. We are disappointed with growth

parameters of profit and loss account. Bank’s balance sheet within J&K state especially

in deposits growth sense remained muted while credit growth grew handsomely. Overall

we found mixed growth trend which discourage us to reduce price target.

Valuation & View


28

J&K BANK



Moderate growth in NII despite of healthy

loan growth

Higher operating expenses led flat growth in

operating profit

Profitability increased on account of reversal

of provisions and lower tax rate


29

J&K BANK




Quaterly Result (Rs. Cr) 3QFY14 2QFY14 3QFY13 % YoY Gr % QoQ Gr 3QFY14E Variation(%)

Interest/discount on advances / bills 1266 1244 1090 16.2 1.7 1322 -4.3

Income on investments 434 396 421 3.2 9.7 423 2.6

Interest on balances with Reserve Bank of India 16 10 23 -31.4 60.2 13 16.6

Others 0 0 0 0

Total Interest Income 1716 1650 1533 11.9 4.0 1759 -2.5

Others Income 87 99 91 -3.4 -12.1 96 -8.8

Total Income 1803 1749 1624 11.0 3.1 1855 -2.8

Interest Expended 1069 968 939 13.8 10.4 1022 4.6

NII 647 682 594 8.8 -5.2 738 -12.3

Other Income 87 99 91 -3.4 -12.1 96 -8.8

Total Income 734 781 685 7.2 -6.0 834 -11.9

Employee 188 177 164 14.7 6.3 180 4.3

Other Expenses 105 108 86 22.3 -2.5 120 -12.2

Operating Expenses 293 285 250 17.3 2.9 300 -2.3

PPP( Rs Cr) 441 496 435 1.4 -11.2 533 -17.4

Provisions -5 56 22 -120.6 -108.3 48 -109.5

PBT 445 441 412 8.0 1.1 485 -8.2

Tax 124 138 123 0.9 -10.1 145 -14.7

Net Profit 321 303 289 11.0 6.2 339 -5.4

Balance Sheet Data ( Rs Cr)

Net Worth 5797 5475 4898 18.3 5.9 5815 -0.3

Deposits 63157 61171 57075 10.7 3.2 65907 -4.2

Borrowings 1150 1346 801 43.6 -14.6 1579 -27.2

Advances 43318 41121 35658 21.5 5.3 44081 -1.7

Investment 22714 22316 22681 0.1 1.8 24200 -6.1

Asset Qaulity ( Rs Cr)

GNPA 725 709 582 24.7 2.3

NNPA 97 78 50 95.7 24.9

GNPA(%) 1.67 1.72 1.63

NNPA(%) 0.22 0.19 0.14

PCR(%) 87 89 91

30

J&K BANK




P/L 2010 2011 2012 2013 2014E 2015EInterest/discount on advances / bills 2342 2630 3394 4318 5046 5703

Income on investments 705 1066 1403 1723 1713 1983

Interest on balances with Reserve Bank of India 11 17 39 97 56 56

Total Interest Income 3057 3713 4836 6137 6816 7742

Others Income 416 365 334 484 372 372

Total Income 3473 4078 5170 6621 7188 8114

Interest on deposits 1841 2069 2902 3741 3987 4386

Interest on RBI/Inter bank borrowings 83 46 41 26 101 139

Others 14 54 54 54 0 0

Interest Expended 1938 2169 2997 3821 4092 4386

NII 1119 1544 1838 2316 2724 3356

NII Growth(%) 37.9 19.1 26.0 17.6 23.2

Other Income 416 365 334 484 372 372

Total Income 1536 1908 2172 2800 3097 3728

Employee 366 524 521 652 675 814

Other Expenses 211 235 281 337 469 566

Operating Expenses 577 759 802 989 1144 1379

PPP( Rs Cr) 958 1149 1370 1811 1952 2349

Provisions 446 534 567 756 137 156

Net Profit 512 615 803 1055 1271 1535

Net Profit Grwoth(%) 20.1 30.6 31.4 20.5 20.8

Key Balance sheet dataDeposits 37237 44676 53347 64221 66789 73468

Deposits Growth(%) 20.0 19.4 20.4 4.0 10.0

Borrowings 1100 1105 1241 1075 1363 1884

Borrowings Growth(%) 0.4 12.3 -13.4 26.8 38.2

Loan 23057 26194 33077 39200 45080 51843

Loan Growth(%) 13.6 26.3 18.5 15.0 15.0

Investments 13956 19696 21624 25741 24535 21099

Investments Growth(%) 41.1 9.8 19.0 -4.7 -14.0

Eastwind CalculationYield on Advances 10.2 10.0 10.3 11.0 11.2 11.0

Yield on Investments 5.0 5.4 6.5 9.4 7.0 9.4

Yield on Funds 7.7 7.5 8.3 8.9 9.8 10.6

Cost of deposits 4.9 4.6 5.4 5.8 6.1 6.0

Cost of Borrowings 8.8 9.1 7.7 7.4 7.4 7.4

Cost of fund 5.1 4.7 5.5 5.9 6.0 5.8

ValuationBook Value 621 718 844 1003 1146 1412

P/BV 1.1 1.2 1.1 1.3 1.2 0.9

P/E 6.4 6.9 5.5 5.9 5.1 4.2

Narnolia Securities Ltd402, 4th floor 7/ 1, Lords Sinha Road Kolkata 700071, Ph

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email: [email protected],

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India Equity Analytics Today: Book Profit on Shree Cement and Axis Bank Stock

Economy & Finance

Transcript of India Equity Analytics Today: Book Profit on Shree Cement and Axis Bank Stock